Silver and gold surged to records in London on speculation that China will buy precious metals to diversify its foreign-exchange reserves.

China, with more than $3 trillion in reserves, plans set up new funds to invest in energy and precious metals, Century Weekly magazine reported, citing unidentified people. Silver for immediate delivery surged to a record $49.79 an ounce, and gold reached $1,518.32 an ounce.

“People are expecting China to be a major buyer of precious metals,” said Adam Klopfenstein, a senior strategist at Lind-Waldock in Chicago. “Gold is piggybacking on silver. You’re seeing a blowoff rally in silver, but we don’t know when the bubble gets popped.”

On the Comex in New York, silver futures for May delivery rose $1.393, or 3 percent, to $47.47 at 11:53 a.m. Earlier, the price climbed as much as 8.2 percent to $49.845. The metal reached a record $50.35 in January 1980 as the Hunt Brothers tried to corner the market.

Spot silver climbed 26.25 cents, or 0.6 percent, to $47.5125. Earlier, the metal jumped as much as 5.4 percent and fell as much as 3 percent.

Gold futures for June delivery rose $7.60, or 0.5 percent, to $1,511.40. Earlier, the metal climbed to a record $1,519.20. The spot price advanced $4.60, or 0.3 percent, to $1,511.45.

Commodities have reached the highest since 2008, partly on demand for a hedge against inflation. Gold and silver have rallied amid sovereign-debt concerns in the U.S. and Europe. Silver has posted the biggest gain in 2011 among 19 raw materials in the Thomson Reuters/Jefferies CRB Index.

Rate Outlook

The dollar has dropped for four straight weeks against a basket of major currencies. Te Federal Reserve may keep borrowing costs at zero percent to 0.25 percent, while European Central Bank officials signal further rate increases. Fed Chairman Ben S. Bernanke will hold a media conference after the Federal Open Market Committee statement on April 27 following a two-day meeting in Washington.

“The disdain for currencies generally and the need to embrace precious metals is still very strong,” said Dennis Gartman, an economist and the editor of the Suffolk, Virginia- based Gartman Letter.

Before today, spot silver more than doubled in the past year, while gold increased 32 percent.

“Silver in the long run really will end up in a bloodbath, but in the short term, the market loves it,” Dominic Schnider, a Singapore based director of wealth-management research for UBS AG, said today in a Bloomberg Television interview. The commodity’s relative-strength index, which may signal a decline above 70, was over 89.

Investment Demand

Investment demand for silver climbed 40 percent to a record in 2010 and fabrication use jumped to a 10-year high, GFMS Ltd. said in an April report published by the Washington-based Silver Institute. Assets held in exchanged-traded products rose to a record 15,509.54 metric tons on April 12, data compiled by Bloomberg from four providers shows.

“Silver is definitely benefiting from spillover demand from gold as a haven investment,” said Li Ning, an analyst at China International Futures (Shanghai) Co.

Silver also is found in products from solar panels to plasma screens and chemical catalysts.